Toronto Stock Exchange Market plays ‘crack the whip’ with investors

Remember that childhood game called crack the whip? That’s exactly what the market is doing to those interpid investors bold enough to go for the ride. Since Black Monday last Oct 19, volatile swings in the composite index have been creating and obliterating fortunes in a matter of days. This week was no different.

Although the tse 300 composite index has flirted with the 3,000-pt mark for the past four weeks, it remains anything but stable. Last Monday, three days of gains crashed head long into a 107.79-pt decline. Despite a modest lowering of offshore interest rates by West Germany, the U.S. dollar continued its unprecedented decline — a decline which sparked the sell-off. Today, the index rebounded by a modest 23.8 pts to close at 3,021.5 pts, essentially unchanged from last week. However, as we pointed out in our Nov 16 report, such rapid sell-offs are characteristic of youthful bear markets.

The devastated dollar continued to have a positive effect on gold bullion. The price soared to a six year high of $492.50 (US) per oz before settling back to $488.50 today. The first London fix was established at $$490. Investors, still recovering from the precipitous drop in gold equity prices, remain cautious, despite the robust performance of bullion. The tse gold and silver index registered a small 26.44-pt gain today to 8,043.54 pts — still way off last August’s high of 10,389.96 pts.

The name of the game in gold equities today remains liquidity and quality. This naturally means that most juniors will be the last to respond to major bullion prices moves due to the fact that few juniors are evaluated on an earnings per share basis, as are the majors.

Such was the scenario on the tse. American Barrick Resources chalked up a gain to $28.38. Barrick’s receipts, which are highly leveraged, hit $12.50 in our review week before settling back to $8.50. Days after the crash, these same receipts could be had for a mere $2.75. Lac Minerals has also rebounded nicely, closing at $13.75. Most juniors however, continue to languish near post-crash lows.

Nickel-copper producers Inco Ltd. and Falconbridge Inc. gave up some ground, despite continuing price strength in both commodities. Inco closed at $22.75 whereas Falconbridge was slightly easier at $20.63. Both companies are looking forward to strong fourth quarters. For investors with steel-lined stomachs, take a look at Falconbridge’s receipts. They expire at month end and allow you to buy a share at $19.50. Small moves in the common translate to big moves in the receipt. Closing today at $1.90, there’s plenty of kick left in this paper, especially if institutional buying of Falconbridge picks up in the next few weeks.

Claude Resources, which had to walk from a $12 million financing following October’s crash, announced a new deal to raise $6.5 million. Claude closed at $4.75. Another deal hurt by the new post- crash financial reality is Sonora Gold. The gold mining company says that a deal to buy back a 30% interest in its Jamestown mine in California from Pathfinder Gold, has been put on hold. Sonora was quiet at $7.88.

More drill results from the Tundra gold deposit in the N.W.T. continue to extend this massive deposit. Getty Resources, which holds a 40% interest in this project, was slightly stronger at $7.38.

An interesting speculative issue to watch are the Cliff Resources warrants. After dipping to a low of 9 cents , they rebounded to 14 cents today. Cliff and partner Canaustra Gold Exploration plan to bring there 50-50 owned Olinghouse gold deposit in Nevada into production next spring. Cliff’s credit will be about 10,000 oz of gold. The warrants are good until Apr, 1988 and can buy a share at $1.25. The stock was at 85 cents today. At production Cliff will have 4.2 million shares issued. This all suggests that the warrants offer limited downside and considerable upside to investors who appreciate the risks.